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Chapter 8. Improving the health care system

Chapter 8. Improving the health care system

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8. IMPROVING THE HEALTH CARE SYSTEM



D



uring the initial phases of the opening-up of the Chinese economy, the overriding

objective was to raise output and incomes. Economic restructuring undermined the health

care system, which became increasingly privately financed, though remaining largely

publicly-provided. While the population’s health status was improving, a rising number of

people were priced out of treatment or fell into poverty because of health care costs. The

relative price of health care rose markedly until 2000, pushing up the share of overall

health care expenditure in GDP (which in 2008 was around 4½ per cent). Hence, a marked

change in the equity and efficiency of the health care system was needed. In recent years,

several reforms have been initiated, including in 2009 the launch of two new health

insurance schemes, whose design varies across the country, on top of the two existing

systems. Overall, nearly all the population is now covered by medical insurance. This

chapter first describes the evolution of the health status of the population and then turns

to the supply and management of resources for health care and to the demand for care. It

goes on to discuss financing and recent government initiatives. It closes with an

assessment of the latest policy changes and suggestions for further progress.



Health performance

China has very successfully reduced deaths from infectious diseases. By the

early 1990s, infectious diseases had been almost eliminated (Figure 8.1). The associated

death rate did not fall as much, since the few remaining cases tended to be more severe.

Since the mid-1990s, though, the prevalence of infectious diseases has increased anew due

to the growth of sexually-transmitted diseases and AIDS, which now accounts for almost

half of all deaths from communicable diseases. The incidence of pulmonary tuberculosis

has tripled over the past decade, although the cure rate is high. Of more concern is the

spread of multi-resistant tuberculosis, with some provinces having the highest incidence

of this disease in the world. Zoonoses are a growing problem, especially given the close

contact between farmers and animals in areas close to major cities. Even so, the death rate

from infectious diseases is low, comparable to that in many advanced economies. As a

result, years of life lost from infectious disease compare well to lower-income OECD

countries (Figure 8.2).

The fall in deaths from infectious disease has been mirrored by a fall in infant and

maternal mortality. In urban areas, infant mortality has been halved in the past two

decades and in rural areas it has been cut by a factor of three. As a result, in urban areas

these two death rates are starting to approach those in the OECD area: the infant mortality

rate is only one fifth higher than in the United States. The infant mortality rate in rural

areas is still high compared to advanced countries but below the national averages for

many major lower-income countries (Brazil, India, Indonesia, Mexico and South Africa) and

substantially so in the case of India and South Africa. Nonetheless, progress has been

slowing and three quarters of deaths are still caused by avoidable problems (UNICEF, 2006).



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8. IMPROVING THE HEALTH CARE SYSTEM



Figure 8.1. Cases of infectious diseases

Cases per 100 000 people



8000



350

300



7000



250

200



6000



150

5000



100

50



4000



0

3000



1990 1992 1994 1996 1998 2000 2002 2004 2006 2008



2000

1000

0

1970 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008



Total



Vaccine preventable



Gastrointestinal infectious diseases



20 others



Source: China Health Statistics Yearbook.



1 2 http://dx.doi.org/10.1787/780021485858



Figure 8.2. Years of life lost due to non-communicable diseases

As a share of total years lost from disease, in 2004



%

90



%

90



80



80



70



70



60



60



50



50



40



40



30



30



20



20



10



10



0



0

South

Africa



India



Indonesia



Brazil



Mexico



Turkey



China



Russian

Federation



United

States



United

Kingdom



Source: World Health Organisation (2009).



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8. IMPROVING THE HEALTH CARE SYSTEM



In contrast to infectious diseases, the death rate from chronic diseases has been on the

rise. Death rates from cancer and diseases of the heart and lung have increased

substantially since 1990. In particular, deaths from lung cancer have risen sharply,

becoming the leading form of death from cancer. There has also been a major increase in

chronic obstructive pulmonary disease and pulmonary heart disease, both associated with

smoking (Box 8.1). Other diseases, notably diabetes, hypertension and coronary diseases,

may be easier to prevent. The last nationwide survey, in 2001, suggested that diabetes

affected 5.6% of the population by 2001 (Chen and Wang, 2009). Its incidence has

nevertheless been increasing rapidly and, by 2008, large random surveys in Tianjin and

Fujian suggest that in these provinces it had risen to 9.5%, slightly below the 2007 US rate

(Tian et al., 2009; Lin et al., 2009). Hypertension is also becoming more common. Indeed,

high consumption of dietary sodium, used in food preservation, is a major problem. Nearly

18% of Chinese adults aged 15 years and older had hypertension (Cheng, 2009).

The probability of dying between the age of 15 and 60 has fallen markedly and is now

only slightly above that in the United States, though well above that in the rest of the

higher-income OECD members. In terms of the overall losses to disease, the decline in

infectious and prenatal deaths, added to the fall in adult mortality, has resulted in a

significant increase in life expectancy at birth. Indeed, when life expectancy is recalculated

to remove years when the person is either unhealthy or disabled, the so-called healthy life

expectancy is on a par with that in Turkey and Mexico and well above that in some other

emerging market economies, especially India and South Africa (Figure 8.3).



Figure 8.3. Expected healthy years of life at birth

Years



Years



80



80



70



70



60



60



50



50



40



40



30



30



20



20



10



10



0



0

South Africa



India



Indonesia



Russian

Federation



Brazil



Turkey



China



Mexico



Major 7

OECD



Source: World Health Organisation (2009).



1 2 http://dx.doi.org/10.1787/780072153000



Health outcomes clearly improved in China and continued to do so in recent years.

However, while in the late 1970s, the population enjoyed much better health than might be

suggested by its income level, this is no longer the case. By 2006, life expectancy had moved

back into line with its relative income level (Wagstaff et al., 2009), improving much less

than, say, in Indonesia or Malaysia.

While overall performance has been good, serious problems endure. The poor health

outcomes in lower-income areas were documented in Chapter 5. Within urban areas,



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8. IMPROVING THE HEALTH CARE SYSTEM



Box 8.1. The smoking epidemic

China accounts for 30% of the world’s cigarette consumption against 20% of its

population. This development is relatively new. The growth in smoking has followed that

in the United States with a 40-year lag. US smoking has started to decline, but in China,

after pausing during the 1990s, it has expanded sharply (Figure 8.4), with total

consumption rising 44% in recent years. Individual consumption has reached 15 cigarettes

per person per day amongst smokers. About one third of the population over 15 now

smoke, but the rate for men is 57% (70% for those aged 30 to 60) and that for women only

3% (Yang et al., 2005).

Public awareness of the dangers of smoking has improved since the mid-1990s. For

example, by 2002 the proportion of adults who are not aware that smokers are at increased

risk of heart disease had dropped from 96% to 78%, while for lung cancer it had dropped

from 60% to 30% (Yang et al., 2005). However, a 2007 survey of doctors in Beijing found that

while 91% were aware of the link between lung cancer and smoking, only 63% realised it

caused heart disease and only 55% that passive smoking could cause heart disease (Jiang,

2007). In fact, nationwide, 41% of male doctors are smokers, against just 8% in the United

Kingdom and 3% in India (World Health Organisation, 2008).



Figure 8.4. Cigarette consumption per capita and affordability1

Index 1990 = 100



Index 1990=100

300



Affordability



Index 1990=100



Consumption per capita



300



250



250



200



200



150



150



100



100



50



50

1990



1992



1994



1996



1998



2000



2002



2004



2006



2008



1. Affordability is defined as the ratio of household disposable income to the price of an average pack of

cigarettes.

Source: Hu, Mao et al. (2008), updated from China Statistical Yearbook and China Research and Intelligence.

1 2 http://dx.doi.org/10.1787/780076543544



Smoking-related deaths have risen markedly in the past three decades, but are set to

increase much faster still unless action is taken quickly. Death from smoking takes

30 years to manifest itself and is most pronounced amongst those who started to smoke by

age 20. Indeed, for this group, their probability of dying between the age of 35 and 59 is

around 50%, like in the United States and United Kingdom (Peto, 2009). Moreover, young

rural smokers now have the same habits as their urban counterparts. China can expect

that within 30 to 40 years deaths from smoking will rise to three million, accounting for

one third of annual deaths (Peto, 2009), up from one million in 2005 (China Cancer

Foundation, 2006).



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8. IMPROVING THE HEALTH CARE SYSTEM



Box 8.1. The smoking epidemic (cont.)

Smoking also undermines human capital formation. A comparison of the spending of a

sample of smokers and non-smokers in Guizhou showed that extra spending of

CNY 100 on tobacco was associated with a CNY 45 reduction in outlays on health and

education (Wang et al., 2006). In urban households where the major earner is a smoker,

cigarettes account for 8% of spending, rising to 11% in rural areas (Hu et al., 2008). On one

estimate, such a level of spending pushed as many as 50 million people below the poverty

line (Liu, 2006).

The government completely controls the tobacco industry in China. The only cigarette

producer is the fully-state-owned China National Tobacco Corporation (CNTC). It is one of

the most profitable companies in the country, with costs accounting for only 32% of pretax sales. Imports are allowed and some of the main brands are foreign-owned but

retailing is controlled by the state monopoly. The industry is regulated by State Tobacco

Monopoly Administration (STMA), which fully overlaps with the CNTC and determines the

development strategy for the industry.

Cigarette taxation in China is relatively low, accounting for only 21% of the average

tobacco price. It has an anomalous structure in that the ad valorem excise duty (called a

consumption tax in China) is progressive, with a lower rate for cheaper cigarettes. In

addition, cheaper cigarettes are cross-subsidised by more expensive brands. Both policies

were introduced in order to support the purchasing power of poorer families. In addition to

the excise there is also a tobacco leaf tax paid to the local government where the tobacco

is produced, which pushes the local government to try to expand the area under

cultivation. The CNTC aims to boost production and as part of the stimulus package is set

to increase investment in tobacco growing to provide jobs for a million migrant workers.

The government did raise the tax on cigarettes in 2009. However, the STMA indicated

that the development plans of the industry might be hurt. Therefore, the regulator and the

corporation decided to lower wholesale prices by the exact amount by which taxes had

been increased. As a result, retail tobacco prices have risen by only 2% over the past

decade, against a 111% rise in nominal per capita incomes, making cigarettes far more

affordable.



severe problems remain amongst migrant families. A study of migrant children found that

vaccination rates were some 10 percentage points lower for migrants than for the nation as

a whole (Liang et al., 2008). As a result, the prevalence of measles infection was eight times

higher amongst the children of migrants than amongst the registered population in Beijing

and Shanghai (Vail, 2009). Malaria, hepatitis, typhoid fever, and respiratory infection were

found with a higher incidence among migrants in Zhejiang and Guangdong. From limited

investigations and reports, the incidence of occupational disease among township

enterprise employees was high, at 15.8% in 2002. Rural migrant workers accounted for the

majority of workplace deaths in 2003 and about 80% of deaths in the most dangerous

industries (mining, construction and dangerous chemicals) were migrant workers (Zheng

and Liang, 2005). Finally, migrants’ maternal mortality after child birth is 83% higher than

for mothers who were registered inhabitants (Herd et al., 2010; UNDP, 2008).



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8. IMPROVING THE HEALTH CARE SYSTEM



The health system

Supply of medical resources

The government has stepped up investment in medical facilities over the past decade.

In urban areas, medical care is almost entirely provided through state or local government

institutions. Private institutions play a limited role, providing only 5% of hospital beds. The

number of general and special hospitals, which barely increased during the 1990s, grew by

close to one quarter between 2000 and 2008. The number of beds rose almost as much,

although it did not keep up with population growth in urban areas. At 2.9‰ (per thousand),

the overall provision of beds is low relative to the unweighted average in the OECD area, but

the latter conceals wide variations. The availability of beds in China is only 20% lower than

in Australia, Canada, Denmark, Norway, Portugal, Spain, Switzerland, the United Kingdom

or the United States. It is higher than in Mexico or Turkey.

At the same time, resources have been reallocated between types of facilities. The

number of very large hospitals (with over 800 beds) rose almost six-fold, bringing their

share of beds to 12%, from 4% in 2000. At the same time, the number of the two lowest, and

local, levels of medical facilities (township health centres and various forms of clinics,

outpatient facilities and nursing stations) declined by some 20%. Thus, in terms of

infrastructure, there has been re-orientation away from primary towards hospital care,

which absorbs two-thirds of health expenditure.

Hospitals are graded according to the administrative authority to which they are

responsible (national, provincial or county governments). The higher the grade, the more

skilled the staff and the better the equipment. Major hospitals with over 500 beds are

found in bigger cities while intermediate-sized hospitals are found in county capitals and

serve the surrounding rural population. In rural areas, there are also small hospitals in

townships. The bulk of inpatient care is provided at prefectural-level hospitals (Figure 8.5,

left panel), which typically serve a catchment area with a population of 600 000.

Hospitals are also the dominant suppliers of primary ambulatory care in urban areas

(Figure 8.5, right panel). Overall, they produce nearly 80% of the value of all first-level

medical consultations. The over-reliance on outpatient services is evidenced by the

number of outpatient visits per hospital bed, which in 2008 stood at 1 048 per year,

against 313 in English hospitals. Hospitals treat many illnesses for which they are overequipped. One survey found that 20% of outpatient visits were for colds or gastroenteritis

(Lim, 2002). Government policy has been reoriented to devolving primary care to lowerlevel institutions. The number of urban primary care facilities has expanded in recent

years. However, the number of clinically-trained doctors working in these community

centres is still small (just over 13 000 nationwide).

In rural areas, the situation for primary care is more difficult. For primary care, rural

residents have the choice between village clinics or township medical centres, unless they

are close to a county-level city. Nearly all villages have such clinics which are now generally

privately run, even if the facilities are owned by the village collective. They are staffed by

village medical staff. Since 2002, doctors in these facilities have had to be certified or

assistant physicians. However, enforcement of these rules appears poor. Even in rural areas

of Beijing, one-third of the professional staff had no qualification beyond junior high

school, rising to 70% in poor rural counties (Eggleston et al., 2008). Nonetheless, these

doctors have the same prescribing rights as all other doctors. The density of doctors with



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8. IMPROVING THE HEALTH CARE SYSTEM



Figure 8.5. Provision of care by level of institution1

Inpatient care ambulatory care



Inpatient care



Ambulatory care



County

Township/ hospital

community/ 3%

maternal

12%



National

hospital

11%

Provincial

hospital

18%



City county

hospital

15%



Township

heath

centre

13%



National

hospital

12%



Primary

care

8%



Provincial

hospital

15%



County

hospital

3%



Prefectoral

hospital

34%



City county

hospital

15%



Prefectoral

hospital

41%



1. Per cent of value of output, with the latter calculated by multiplying the average price per consultation and

patient by the number of consultations and patients.

Source: Health Statistical Yearbook and OECD calculations.



1 2 http://dx.doi.org/10.1787/780086786810



at least a college education is only 0.1‰ of the population, compared with 0.9‰ in urban

areas (Anand et al., 2008).

Family doctor practices are not generally found in urban areas, though there are some

family doctors in government-owned community health centres. Indeed, family doctor

training was only introduced into medical schools in 1999 and even by 2007 only one-fifth

of medical schools had family medicine courses. The result is that most community health

centres are staffed by specialists rather than by staff trained in primary care. Community

health centres are designed to serve a population of between 30 000 and 100 000,

depending on the type of town (Table 8.1). Each centre is then responsible for a number of

health stations. Generally health stations have a catchment area varying from 10 000 to

15 000 people. The size of the health stations is thus broadly the same as that of a group

practice in England. They differ in two respects, though. First the level of training is much

lower, with doctors at health stations having only 2.3 year post-secondary medical



Table 8.1. Staff size and education level of community health centres and stations

Number of staff

Community health

centre



Doctors



Community health

station



Education level



People



Community health

centre



Community health

station



Per cent of all doctors



Doctor



24.0



3.5



Nurse



17.0



2.3



Pharmacist



5.8



0.8



> 5 years



25.4



19.4



Laboratory assistant



2.8



0.3



3 years



39.0



44.4



Technician



6.2



0.7



Middle school



29.2



30.6



Administration



9.4



0.6



None



6.4



5.6



Total staff



65



8



65 000



15 000



Population served

Source: Yang et al. (2008).



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8. IMPROVING THE HEALTH CARE SYSTEM



education, on average. More importantly, they are the bottom level in a very hierarchicallyorganised medical system and report to community centres which in turn report to

hospitals. Hence, they are unlikely to attract ambitious staff. By contrast, a group practice

in England is a privately-owned and managed unit funded by the government.

Maternal health care centres have become increasingly underfunded as government

support declined. Therefore, many have had to start charging fees, despite the supposedly

free nature of the service, leading to an emphasis on treatment rather than prevention.

Moreover, in rural areas, many essential treatments are not fully implemented. As a result

of this and poor training of doctors, one third of all maternal deaths in rural areas come

from haemorrhages after delivery, a rate nearly 13 times higher than in urban areas.

Strategies to reduce maternal deaths would also reduce infant deaths, nearly 80% of which

occur in the first week after birth.

The number of doctors has risen over time, just ahead of population growth, and given

China’s income level, it may seem high relative to the population. In addition, there are a

large number of less-qualified village doctors. Also, unlike most countries, China has more

doctors than nurses (Anand et al., 2008). However, average qualification levels are relatively

modest. Indeed, the aim has long been to try to provide basic medical services to as many

as possible at a price that society could afford. The emphasis on providing essential care

was achieved through using medical staff with a very wide range of training but all of

whom were called doctors (Table 8.2). Even so, the prevalence of doctors is half that in the

OECD area, at 1.5 per thousand people. Moreover, if the comparison is made for doctors

with five years of training including an internship, the density of doctors falls to 0.33‰ in

China, against an unweighted OECD average of 3.1‰. This was very effective as long as the

major healthcare problems were infectious diseases and prenatal care, but as income

levels rose there was a need to raise qualifications. Starting in 1999, it became compulsory

for all new doctors to take a licensing examination before becoming a practitioner.

Nonetheless, as yet only one-quarter of doctors have a degree and one year of clinical

internship and almost half have no education beyond secondary high school (Table 8.3).



Table 8.2. Number of doctors by level of training

In 2005, absolute number and density, ordered by length of training



Village doctors (medics)

Doctors

Doctors but not physicians

Licensed physicians and assistants

Survey measurement error

Assistant physicians

Physicians

Dentists



Number of doctors



Doctor density



Thousands



Doctors per 100 000 people



864



66



1 938



148

383



29



1 556



119

50



4



294



22



1 312



100



46



Medical physicians



4

1 266



97



Secondary school or lower



369



28



Degree but no clinical training



306



23



With degree and clinical training

Five years plus one clinical and one supervised

Six years plus two years clinical

Medical research



490



37

438



33



42



3



11



1



Source: Ministry of Health.



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8. IMPROVING THE HEALTH CARE SYSTEM



Table 8.3. Training required to become a doctor

Becoming a licensed doctor



Becoming a licensed assistant doctor

Years of work

experience after

becoming assistant

doctor



Years of work

experience to become

assistant doctor



not possible



2



1



0



not possible



5



0



not possible



Years of education after

senior high school



Years of clinical

internship



Years of work

experience after

graduation



Research degree



8



2



0



Masters degree



7



2



0



University degree



5



1



1



College associate

degree



3



0



Secondary technical

school



0



High school or lower



0



1

Phased out after 1998



Source: Ministry of Health (1998).



Nearly all doctors are employed by various forms of government agencies on a salaried

basis, either in hospitals or in health care centres. The pay and qualifications of the staff

generally decline with the prestige of the unit. The best-qualified doctors are found in

major hospitals in provincial capitals. At the other end, in township health centres most

doctors have just three years of training. In rural villages, first-line medical care is provided

by “village medics”, who have a low level of training and are not generally counted as

doctors. They are the only medical personnel paid on a fee-for-service basis.

Over the past decade, the expansion in the number of doctors has not kept up with

that of beds, nor with the increase in demand for outpatient consultations. While this

called for training more medical students, the surge in their number in recent years, in line

with the general massive expansion in tertiary education, exceeds the sector’s absorption

capacity. By 2009, the number of students graduating with bachelor and associate degrees

equipping them to be doctors likely reached 0.4 million, as against a stock of such doctors

in 2005 of only 0.8 million. A similar mismatch occurs for associate doctors with less

advanced training. There are about 40 000 graduates from the master’s degree programme

– compared to a total stock of doctors with such qualification of just 42 000 in 2005. In such

a situation of over-supply, hospitals tend to only recruit graduates with the highest level of

qualification. Even the graduates of the most prestigious universities have problems

finding work as doctors. For example, of the graduates of Peking University’s five-year

clinical medicine programme during the period 2004 to 2006, only 28% were working as

doctors in 2007 (Anand et al., 2008).

There has been a considerable expansion in the number of nurses and efforts to

enhance the quality of their training. The government aimed to increase the number of

trained nurses by 60% (Ministry of Health Study Group, 2003). Nearly all the extra training

was to take place at college and university level, with the number of graduates from these

institutions expected to rise six-fold. The number of nurses trained at secondary

vocational schools (representing 85% of the stock of nurses) was to be held constant. As

with doctors, this expansion of training has run ahead of recruitment by hospitals and

community health centres. Hence, barely one third of the graduates of these programmes

seem likely to use their training. A better strategy might have been to markedly reduce the

numbers trained in secondary schools.



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8. IMPROVING THE HEALTH CARE SYSTEM



Price regulation

The price of most basic health care services is regulated by the government. A Yellow

Book, issued by the NDRC’s Price Bureau, lists the prices for thousands of medical

procedures, services and diagnostic tests. These prices have consistently been set below

cost. In the late 1990s, the level of recovery was 25% for hospital bed and board, 30% for

basic surgical operations and 40% for general examinations and treatments

(Liu et al., 2000). On the other hand, the prices for a CT scan, X-ray exams and pathology

tests were 70%, 50% and 28% above cost, respectively. Government policy in this area has

remained unchanged since, with several provincial government price bureaus reducing the

cost of basic medical treatments despite increasing labour costs (Wang et al., 2007).

Hospitals deal with the problem of low regulated prices by unbundling services or

over-using facilities with high profit margins, thereby overcoming the problem of

unrealistically low regulated prices. The first practice is illegal but if inspectors detect it the

fine is small. In the second case, the hospitals often form pools of investors – sometimes

drawn from staff – to provide the equity for bank-financed purchases of equipment. The

result has been in line with the NDRC objective of favouring high-tech equipment. The

profit from the use of high-tech equipment covers about 5% of operating costs. Hospitals

are also allowed a 15% mark-up over wholesale pharmaceutical prices and a 30% mark-up

if they purchase directly from the manufacturer. Often these mark-ups are exceeded

considerably, rising to as much as a ratio of 10. Even if they are respected, there is no policy

aimed at the use of generic drugs. Overall, the mark-up on drugs covers 5% of medical costs

(Health Statistics Yearbook, 2008). Hospital management often incentivizes doctors by

creating sales targets for pharmaceuticals and high-tech examinations. Departments that

beat targets receive bonuses, to which doctors have been shown to respond (Liu and

Mills, 2003). Other hospitals link doctors’ pay directly to drug prescribing and CAT scanner

use. There is also evidence that doctors are rewarded for prescribing the products of certain

companies. These practices gives rise to over-prescribing, which can be dangerous.1



Hospital management

Nearly all Chinese hospitals are public service units with the facilities owned by the

government. They are, however, often managed under a “director responsibility” system

under which the local authority negotiates a contract in which there is a fixed annual

payment and then the hospital has to manage its own activity during the year. However,

key components of the budget may be out of the control of the manager – hiring decisions

may be taken by the local health bureau and salaries are determined centrally. While the

above examples show that hospitals do react to economic signals, there is still concern that

hospitals operate under a soft budget constraint that undermines efficiency. In

Guangdong, for instance, hospitals whose deficits increase tend to receive greater

subsidies the following year (Eggelston et al., 2009).

There is scope for changing the payment system in hospitals. At present, hospitals

generate enough information to allow for the allocation of patient stays by diagnostic

related groups. These data can also be related to billing (Gong et al., 2004). Thus, fixed costs

per patient could be negotiated with third-party payers, though such systems have their

own built-in incentive problems: hospitals may refuse treatment for patients expected to

be costly or may skimp on service provision. While information on patient records and

billing may be sufficient, hospital accounting may not yet be developed enough to



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8. IMPROVING THE HEALTH CARE SYSTEM



introduce such a system. At present, hospital accounting is cash-based and the relevant

Ministry of Health regulation does not call for a balance sheet (Clarke, 2008).



Financing of health care

By the second half of the 1990s, the public financing of health care was in crisis. In

rural areas, the financing system based on the income of village collectives had collapsed

due to the falling income of the collective. Well over half of village clinics had become

private enterprises, relying on fee income. In urban areas, the system of enterpriseprovided health care was coming to an end and being replaced by medical insurance. With

many of the new private sector companies not paying the theoretically compulsory

contributions, the extent of health insurance coverage in urban areas fell. As a result, the

share of total health care spending financed directly by consumers soared, to over 60%

by 2001 (Figure 8.6). Moreover, those with insurance coverage came from the higherincome groups with stable employment. In 2000, the World Health Organisation rated

China’s health financing system as one of the world’s most inequitable, ranking China

188th out of 191 countries. The Chinese government recognised that this situation could

not continue and described the health system as shameful (Ministry of Health, 2005).



Figure 8.6. Health care spending by consumers relative to total health care

and total consumer spending

Consumer share of total health spending (left scale)

%

65



%



Health share of consumer spending (right scale)



7.0

6.5



60



6.0

55



5.5

5.0



50



4.5

45



4.0

3.5



40



3.0

35



2.5



30



2.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007



Source: Health Statistical Yearbook.



1 2 http://dx.doi.org/10.1787/780102054515



Public sector financing

The bulk of public financing of health care comes through insurance systems rather

than the budget. At the beginning of the decade, insurance essentially concerned the urban

population, as less than 7% of the rural population had insurance. In urban areas, the basic

medical insurance scheme for urban workers (BMIUW) is employment-based. Initially, it

did not include government workers, who were covered by a separate scheme but gradually

nearly all of these have been integrated into the basic system (Caijing, 2009). The scheme

(started in 1998 and completed in 2003) features two components: social pooling (mainly

for inpatient expenses) and individual accounts (mainly for outpatient expenses). It is

currently financed by employer and employee contributions. On average the payment is 8%



220



OECD ECONOMIC SURVEYS: CHINA © OECD 2010



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